Daijiworld Media Network - New York

New York, Aug 26: Oil prices fell about 2 per cent on Wednesday, extending losses from the previous session, as hopes grew that the Strait of Hormuz could reopen after Iran said it had resumed talks with Oman on managing traffic through the strategic waterway.

Brent crude futures fell $1.78, or 2 per cent, to $86.80 a barrel by 0027 GMT, while US West Texas Intermediate crude futures declined $1.49, or 1.8 per cent, to $80.87 a barrel. Both benchmarks had dropped more than 3 per cent on Tuesday.

"The market continues to react to developments surrounding navigation through the Strait of Hormuz, and hopes for progress in talks between Iran and Oman have triggered selling," said Mitsuru Muraishi, an analyst at Fujitomi Securities.

"That said, uncertainty over the outlook has prompted bargain buying, limiting further losses, and prices are likely to remain range-bound for the time being," he added.

Iran said it had restarted talks with Oman to manage navigation through the Strait of Hormuz as it faces mounting economic pressure from US President Donald Trump.

Iran and Oman have held on-and-off discussions for weeks over controlling traffic through the waterway, which handled about one-fifth of global oil and liquefied natural gas shipments before the war began in February.

The two countries said on Tuesday that they had discussed establishing a "joint temporary navigational corridor" through the strait and agreed to clear the waterway of mines.

Amid the continuing tensions, the United States has begun sending personnel back to some diplomatic missions in the Middle East that were evacuated or downsized because of tensions with Iran, two people familiar with the matter told Reuters.

The move suggests Washington sees a reduced risk of the conflict with Iran escalating in the near term, although some embassies will initially operate below full capacity.

On Monday, Washington expanded sanctions aimed at cutting off Iran's economic lifeline, threatening to punish countries that continue to conduct business with Tehran. However, it said the penalties would not be imposed immediately.

Separately, an oil tanker was struck by an unidentified projectile on Tuesday and disabled about nine nautical miles (17 km) northeast of Oman's Ash Shishah, located at the entrance to the Strait of Hormuz, the United Kingdom Maritime Trade Operations said.

In the United States, the American Petroleum Institute reported that crude oil inventories rose by about 4.2 million barrels in the week ended Aug 21, according to market sources.

Analysts polled by Reuters had estimated that US crude oil stockpiles would increase by about 600,000 barrels on average.

Official inventory data from the US Energy Information Administration, the statistical arm of the Department of Energy, are due at 10:30 a.m. ET (1430 GMT) on Wednesday.